Mercer first raised the idea of starting a record company while golfing with Harold Arlen and Bobby Sherwood. By 1941, Mercer was an experienced songwriter and a singer with multiple successful releases. Mercer next suggested the idea to his friend Wallichs while visiting Wallichs' record store. Wallichs expressed interest and the pair negotiated an agreement whereby Mercer would run the company and identify the artists, while Wallichs managed the business side.[citation needed]

On February 2, 1942, Mercer and Wallichs met with DeSylva at a Hollywood restaurant to inquire about the possibility of investment from Paramount Pictures. While DeSylva declined the Paramount proposal, he handed the pair a check worth US$15,000.[citation needed] On March 27, 1942, the three men incorporated as "Liberty Records" (not to be confused with an unrelated label founded in 1955, Liberty Records, eventually acquired by Capitol). In May 1942, the application was amended to change the name to "Capitol Records".[4]

On April 6, 1942, Mercer supervised Capitol's first recording session, recording Martha Tilton singing "Moon Dreams". On May 5, Bobby Sherwood and his orchestra recorded two tracks. On May 21, Freddie Slack and his orchestra recorded three tracks: one with the orchestra; one with Ella Mae Morse called "Cow-Cow Boogie"; and "Air-Minded Executive" with Mercer.

On June 4, 1942, Capitol opened its first office in a second-floor room south of Sunset Boulevard. On the same day, Wallichs presented the first free record to Los Angeles disc jockey Peter Potter, originating the practice of distributing free discs to DJs.[citation needed]

On June 5, 1942, Paul Whiteman and his Orchestra recorded four sides. On June 12, the orchestra recorded five more, including one with Billie Holiday. On June 11, Tex Ritter recorded "(I Got Spurs That) Jingle Jangle Jingle" and "Goodbye My Little Cherokee" at his first Capitol recording session, and the songs formed record #110.

By July 25, 1942, "Cow Cow Boogie" had reached #1 on the "hit parade".[4]

The earliest recording artists included co-owner Mercer, Whiteman, Tilton, Morse, Margaret Whiting, Jo Stafford, the Pied Pipers, and Paul Weston and His Orchestra.[3] Capitol's first gold single was Morse's "Cow Cow Boogie" in 1942.[5] Capitol's first album was Capitol Presents Songs By Johnny Mercer, a three 78-rpm disc set with recordings by Mercer, Stafford and the Pied Pipers, all with Weston's Orchestra.

Capitol was the first major West Coast label and competed with New York City-based East Coast powers RCA-Victor, Columbia and Decca. In addition to its Los Angeles recording studio, Capitol owned a second studio in New York City and, on occasion, sent mobile recording equipment to New Orleans and other cities.

By 1946, Capitol had sold 42 million records and was established as one of the "Big Six" record labels.[citation needed] Also in 1946, writer-producer Alan W. Livingston created Bozo the Clown for the company's new children's record library. Examples of notable Capitol albums for children during that era are Sparky's Magic Piano and Rusty in Orchestraville.

Capitol also developed a noted jazz catalog that included the Capitol Jazz Men and issued the Miles Davis-led sessions, "Birth of the Cool".

Capitol released a few classical albums in the 1940s, some of which featured a heavily embossed, leather-like cover. These recordings initially appeared in the 78 rpm format and were then released on LPs (33 1/3 rpm) in 1949. Among the recordings was a unique performance from Brazilian composer Heitor Villa-Lobos' Choros No. 10, with contributions from a Los Angeles choral group and the Janssen Symphony Orchestra (1940–1952), conducted by Werner Janssen; Symphony No. 3 by Russian composer Reinhold Moritzovich Glière; and César Franck's Symphony in D minor, with Willem Mengelberg and the Concertgebouw Orchestra.

In 1949 the Canadian branch was established and Capitol purchased the KHJ Studios on Melrose Avenue that is adjacent to the Paramount Pictures lot in Hollywood. By the mid-1950s, Capitol had become a huge company that concentrated on popular music.

Children listened to Capitol's Bozo the Clown albums, which featured 78-rpm discs and full color booklets that children could follow as they listened. Although various people played Bozo the Clown on television, Capitol used the voice of Pinto Colvig, who was also the voice for Walt Disney's cartoon character Goofy.

In June 1952, Billboard magazine presented a multi-page chronicle of the label's first decade—an important source for its early history.[6]

In 1959, with the advent of stereo, Capitol changed its LP label design from a large "dome logo" with a gray background to a smaller "dome logo" in a silver oval with a black background and a colorband around the edge. At first, the oval was on the left side of the label, with a tapering vertical line extending from the top and bottom. Classical labels replaced the vertical line with the words "INCOMPARABLE HIGH-FIDELITY" and added a round "FDS-Full Dimensional Sound" shield. In the early 1960s the oval was moved to the top of the label, while the colorband was slightly narrower. This design was used for early Beatles albums.

One of the first groups to sign with Capitol Records in the early 1960s was The Beach Boys. They started in early 1962. As the British music scene burgeoned in 1963, Capitol, as an EMI label, had the right of first refusal on EMI artists. After initial resistance to issuing records by The Beatles, who were signed to sister EMI label Parlophone in the U.K., Capitol exercised its option in November 1963 and helped usher in Beatlemania in 1964. (The Beatles' earliest US issues had been on the independent Vee-Jay label and the key "She Loves You" single on the small Swan label.) Capitol's producers significantly altered the content of the Beatles' albums (see "Record altering") and, believing the Beatles' recordings were unsuited to the US market, modified them. They brightened the sound and piped the recordings through an echo chamber located underneath the parking lots outside the Tower.

As rock music's influence grew in America, Capitol Records hired Artie Kornfeld, who later co-created and produced the Woodstock Festival, as a vice president in his early 20s, making him the youngest to hold the position and the first vice president of rock and roll ever.

The classic "swirl" 45 RPM label design, pictured to the right, first appeared in January 1962. Originally yellow and orange, it had become yellow and red by the mid-1960s. It was brought back briefly from 1979 to 1981 for use on 45s by The Knack. Before 1968, it also appeared on "Starline" label for reissues, albeit with light and dark green swirls replacing yellow and orange (or red) ones. (Several CD reissues, including an early-1990s version of the Beach Boys' "Pet Sounds," used the "swirl" label.)

In 1968, EMI increased its stake in Capitol Records to 98%; However that same year, Capitol merged with Audio Devices, Inc., a manufacturer of computer tape and recording, to form a new holding company called Capitol Industries, Inc., reducing EMI's stake of the company to 68%.

In the summer of 1969, Capitol modernized its logo and replaced its "dome logo" with a "C" logo incorporating a 45 rpm record design. The new logo appeared on a light-green background on albums and a red and orange concentric-circle label on 45's. These became known as the "target" labels. The target label for LP's had a red background for most albums released from May 1971 until November 1972, when both albums and 45's had an orange label with the word "Capitol" printed at the bottom. (In 1971, Grand Funk Railroad became the first Capitol act to be given custom label designs for all its releases, beginning with the "E Pluribus Funk" album.) Budget albums had the same logos but with a yellow backdrop. (The "dome logo" did not disappear entirely: on many labels of this era it can be seen in the small print at the edge.)

In 1978,[citation needed] the "dome" design returned with purple backgrounds for rock and pop releases and red backgrounds for soul and disco. Budget albums had the same logo but a blue or green label. Between 1964 and 1970, Tower Records was a subsidiary label. Other short-lived subsidiary labels included Uptown, Crazy Horse and Sidewalk.

In 1983, the Beatles-era "colorband" label design was brought back, with white print, for both albums and 45's. The last label Capitol used on records was a return to the old purple design with the "dome logo"; after that, compact discs became the dominant format for recorded music. Since the advent of CD's, labels on the discs have varied greatly.

In February 2007, EMI announced the merger of Virgin Records and Capitol into the Capitol Music Group. As part of this restructuring, hundreds of staff from multiple divisions were laid off and many artists were cut from the roster.[citation needed] In September 2006, EMI announced that it had sold the tower and adjacent properties for $50 million to New York-based developer Argent Ventures. Capitol continued to lease the building as its West Coast office.

Capitol Records filed a lawsuit against Vimeo, an online video-sharing website, for audio copyright infringement. Capitol filed the claim after users were visibly lip-synching to some of their tracks.[8]

In 2012 the recorded music operations of EMI were sold to the Universal Music Group and the world headquarters were established in the Capitol Tower as part of the subsequent reorganization of the Capitol Music Group. Steve Barnett, previously an employee of Columbia Records, was recruited to run the division.[9]

Following a legal action by Capitol Records against the ReDigi.com online company in April 2013, the latter was found to be in violation of copyright law. Capitol Records claimed that ReDigi was guilty of copyright infringement due to a business model that facilitated the creation of additional copies of Capitol's digital music files, whereby users could upload the files for downloading or streaming to the new purchaser of the file. ReDigi argued that the resale of MP3/digital music files is actually permitted under certain doctrines ("fair use" and "first sale") but the court maintained that the doctrines' application "was limited to material items that the copyright owner put into the stream of commerce."[10]

Capitol Records released some of the most notable original cast albums and motion picture soundtrack albums ever made. Between 1955 and 1956, they released the soundtracks of three now-classic Rodgers and Hammerstein films, Oklahoma!, Carousel, and The King and I. The mono versions of these soundtrack albums were all released the year that the films were released. The films had been released in then state-of-the-art stereo, so Capitol later released stereo albums of the soundtracks. However, the mono and stereo versions did not always contain identical material. Because stereo grooves took up more space than their mono counterparts, the stereo versions were somewhat shorter than their predecessors. This was not much of a problem with Oklahoma!, because the soundtrack was relatively short. The only piece missing from the stereo edition of the album was a few seconds of the overture. With Carousel, however, half of the Carousel Waltz had to be lopped off, and with The King and I, the instrumental bridge from the song Getting to Know You was removed. These albums (especially Oklahoma!) were bestsellers for Capitol for many years, until, in the 1990s, Angel Records bought the rights to them. Angel Records restored the omitted portions, and in 2001 issued new expanded editions that included all music left out of every previous edition of these soundtracks, bringing the playing time of each to well over an hour.

In 1966 Capitol released the soundtrack album of the documentary tribute John F. Kennedy: Years of Lightning, Day of Drums, a film made by the United States Information Agency that, originally, was not produced for general viewing. However, the quality of the film was considered so high that the public was eventually allowed to see it. The film featured the voice of Gregory Peck as narrator, with narration written and music composed by Bruce Herschensohn. The album was virtually a condensed version of the film—it included the narration as well as the music.

One immensely successful spoken word album was the soundtrack of Franco Zeffirelli's smash film Romeo and Juliet, based on Shakespeare's play. The film became the highest grossing Shakespeare film for years, and the album was also a tremendous hit. It featured not only Nino Rota's score, but large chunks of Shakespeare's dialog. The success of this album spurred Capitol to issue two other Romeo and Juliet albums—one a three-disk album that contained the entire soundtrack (dialog and music), and another album that contained only Nino Rota's score.

As Capitol was later accused of doing with Beatles albums, the label modified the Years of Lightning and Romeo and Juliet albums. Extra music was added to some scenes that, in the film, contained little or no music, such as the duel between Romeo and Tybalt. Presumably this was done to show off the score—and at the end of both the abridged and complete versions of the Romeo albums, the end credits music was omitted, especially unfortunate since virtually all of the film's credits were saved for the end of the picture.

Capitol tried to strike gold again with another spoken word album, one made from the 1970 film Cromwell, starring Richard Harris and Alec Guinness, but neither the film nor album were successful.

As was common practise in the 1950s and 1960s, Capitol modified some albums that were originally released in other countries on other labels. Albums released in the United States contained fewer tracks, typically no more than 11 or 12, compared to albums released in the United Kingdom due to differences in the method publishing royalties were calculated in the two countries.[12] Also, in the American market it was expected for albums to include the current hit single, whereas British albums typically did not duplicate songs released as singles.

Possibly most infamous was the company's release pattern for albums by the Beatles. This began with Capitol's release of Meet the Beatles!, the first album by the group to be released by Capitol in the US. It was based on the British album With the Beatles. Capitol removed five tracks ("Money", "You've Really Got A Hold On Me", "Devil In Her Heart", "Please Mister Postman", and "Roll Over Beethoven") and added both sides of the band's first American hit single ("I Want To Hold Your Hand" and "I Saw Her Standing There") and the British single's B-side, "This Boy." "I Saw Her Standing There" was on the Beatles first British album "Please Please Me."

They issued "duophonic" stereo releases of some recordings where the original master was monophonic. Capitol engineers split the single master monaural track into two, boosted the bass on the right channel, boosted treble on the left channel and added a split-second delay between channels to produce a "stereo" release. This Duophonic process meant that the Beatles' American fans heard a slightly different song from that heard by the rest of the world if they listened to the stereo version.[13]

This trend in the Beatles' American discography continued until 1967 when a new recording contract with EMI was signed. Tired of the way Capitol in the US and other companies around the world were issuing their work in almost unrecognizable forms, beginning in 1967 the Beatles gained full approval of album titles and cover art, track listing and running order in North America. Starting with Sgt. Pepper's Lonely Hearts Club Band Beatles' albums were released unmodified. Issue of 45 RPM singles featuring album tracks was also stopped. Instead non-album tracks were issued as singles between album releases.

Modification of albums for American release continued with other bands:

Pink Floyd's first album, The Piper at the Gates of Dawn on the Tower label (a subsidiary of Capitol), had several tracks removed in favor of their first hit single "See Emily Play". This was criticized[citation needed] because the removed tracks combined ("Flaming", "Bike", and "Astronomy Domine") were much longer than "Emily", making the removals completely unnecessary for reasons of running time.

Iron Maiden's first two albums, Iron Maiden and Killers, had more tracks than their UK counterparts. Iron Maiden's 1980 self-titled debut was released in the US a few months after its UK release with the added track "Sanctuary". Its follow-up, 1981's Killers, was released a few months later in the US, with the added track "Twilight Zone".

The company also had a history of making mistakes with album releases; the American release of Klaatu's debut album 3:47 EST had several spelling errors on the track list, and later Capitol pressings of CD versions of Klaatu's albums suffered severe quality problems. The poor sound quality of Duran Duran's May 1982 release Rio (on Capitol subsidiary Harvest) contributed to the lag in initial sales, until a remixed version was released in November.

Designed by Welton Becket and a young architect from Becket's office,[2] the thirteen-story, earthquake-resistant Capitol Records Tower is the world's first circular office building. Home to several recording studios, it is one of Hollywood's most distinctive landmarks. While not originally intended as a tribute to record players,[14] its wide curved awnings and tall narrow tower mimic the appearance of a stack of gramophone records atop a phonograph.

The building was ordered by British company EMI soon after its 1955 acquisition of Capitol Records and was completed in April 1956. The building is located just north of the intersection of Hollywood and Vine and is the center of the Company's consolidated West Coast operations–and was nicknamed "The House That Nat Built" to recognize the enormous financial contributions of Capitol star Nat "King" Cole. The rectangular ground floor is a separate structure, joined to the tower after it was completed.

In September 2006, owner EMI announced that it had sold the tower and adjacent properties for $50 million to New York-based developer Argent Ventures.[15] In mid-2008, a controversy erupted over a plan to build a condominium complex next door, igniting fears that the building's legendary acoustic properties (specifically its renowned underground echo chambers) would be compromised.

Capitol's recording studios were designed by guitarist and sound expert Les Paul[citation needed] to minimize noise and vibration, then newly important goals in the high-fidelity sound era. An inner wall floating on layers of rubber and cork was erected inside the building's 10-inch-thick (250 mm) concrete exterior walls, leaving a one-inch air gap to provide complete sound isolation.[18]

The facility also features subterranean echo chambers that allow engineers to add reverberation during the recording process. Eight trapezoidal chambers are located 30 feet (9.1 m) underground, with 10-inch concrete walls and 12-inch-thick (300 mm) concrete ceilings. Speakers on one side and microphones on the other permit an echo effect of up to five seconds.

Capitol Records of Canada was established in 1949 by independent businessman W. Lockwood Miller. Capitol Records broke with Miller's company and formed Capitol Record Distributors of Canada Limited in 1954. EMI acquired this company when it acquired Capitol Records. The company was renamed Capitol Records of Canada Ltd in 1958 after Miller's rights to the name expired. In 1959, Capitol of Canada picked up distribution rights for sister EMI labels Angel Records, Pathe Records, Odeon Records and Parlophone Records.[19] In 1957, Paul White joined Capitol of Canada and in 1960 established an A&R department independent of the American company to promote talent for the Canadian market.[20] They found homegrown Canadian talent such as Anne Murray as well as EMI artists from other countries. Canada-only issues bore 6000 series catalog numbers for LPs and 72000 series catalog numbers for singles. Capitol Canada issues of American Capitol recordings bore the same catalog numbers as their American counterparts. Beginning in 1962, Capitol of Canada issued albums by British artists such as Cliff Richard, Helen Shapiro and Frank Ifield. They accepted The Beatles long before the American company. By 1967, they were distributing non-EMI labels such as Disneyland Records, Buena Vista Records, 20th Century Fox Records and Pickwick Records.[20] The company was renamed "Capitol Records-EMI of Canada" in 1974, before the "EMI Music Canada" name was adopted in 1993.[21]

In 1982, Capitol Records-EMI of Canada developed the "SDR", or Super Dynamic Range, process for duplicating cassettes, which resulted in higher-quality audio. SDR was adopted by Capitol's American operations later that year and renamed "XDR" (eXtended Dynamic Range). SDR/XDR cassette releases are noted for their use of a short burst of tones ascending in frequency at the beginning and end of the cassette, before and after the program material.

The Canadian branch of Capitol won two Juno Awards in 1971, the leading music awards in that country. One Juno was for "Top Record Company" and the other was for "Top Promotional Company".

EMI Music Canada was absorbed into Universal Music Canada which retained the Capitol imprint.

Capitol Music Taiwan was established in 2006. It is home to several megastar artists in the Chinese music industry. They include Jolin Tsai (蔡依林), Stefanie Sun (孫燕姿), Zhang Hui Mei (張惠妹), Stanley Huang (黄立行) and Show Luo (羅志祥). Even though artists are signed to this label, the albums are released under EMI Music Taiwan. The label had the highest sales among all labels in Taiwan between 2006 and 2008.

Beginning in 1948, Capitol Records were released in the UK on the Capitol label by Decca Records. After its 1955 acquisition of Capitol, EMI took over distribution in 1956.[25]

EMI's Parlophone unit handled Capitol label marketing in the UK in later years.[26] In 2012, EMI was sold to Universal Music Group. The European Union forced EMI to spin off assets for antitrust reasons, including Parlophone. As a result, Universal Music launched Capitol as an autonomous label in the UK[27] with the rights to The Beatles' recorded music catalog.[28] This marks the first time that the Capitol label in the UK operated as an autonomous label.[29]